02200cam a22002657 4500001000600000003000500006005001700011008004100028100002700069245013900096260006600235490004100301500002000342520105200362530006101414538007201475538003601547690005601583690008101639700002301720710004201743830007601785856003701861856003601898w9214NBER20161209224326.0161209s2002 mau||||fs|||| 000 0 eng d1 aHendershott, Patric H.10aValuing and Pricing Retail Leases with Renewal and Overage Optionsh[electronic resource] /cPatric H. Hendershott, Charles W.R. Ward. aCambridge, Mass.bNational Bureau of Economic Researchc2002.1 aNBER working paper seriesvno. w9214 aSeptember 2002.3 aWe consider retail leases with landlord overages options, with tenant renewal options, with both and with neither. We illustrate how the ratio of initial expected sales to the sales threshold can be manipulated to equate the value of the landlord overage options to that of the tenant renewal option at the same initial rent. As a result, not only are the values of the dual option overage plus renewal lease and no option leases are equal, but the cumulative distributions of potential IRRs on the two leases are nearly identical, suggesting that these leases are equally attractive to risk-adverse investors and thus that the same risky discount rate can be used in valuing the leases. The analysis is carried out in a risk-neutral framework, and sensitivity of the results to interest rate uncertainty, real sales volatility and growth, and the required risk premium on retail real estate is shown. The appropriate risky discount rate for the overage lease is calculated to be 75 to 160 basis points greater than that for the renewal lease. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG0 - General2Journal of Economic Literature class. 7aG3 - Corporate Finance and Governance2Journal of Economic Literature class.1 aWard, Charles W.R.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w9214.4 uhttp://www.nber.org/papers/w921441uhttp://dx.doi.org/10.3386/w9214